What the Economists Say & What it Means to VB

Getting Better…2

Slowly!!!!

Post-Recession Real GRP Growth

2.36 2.35

1.40 1.15 1.06 1.00

0.31 0.28 0.14

-0.18-0.50

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Source: Bureau of Economic Analysis and Old Dominion Economists

Housing Recovery

Number of Existing and New Construction Homes Sold

Hampton Roads: 2002-2015* Year Existing Homes Sold New Construction Homes Sold

Percent New Construction

2002 19,869 4,969 20.0%2003 21,421 4,757 18.2%2004 23,548 4,587 16.3%2005 24,755 4,379 15.0%2006 22,405 4,327 16.2%2007 19,154 3,912 17.0%2008 15,046 3,178 17.4%2009 15,851 2,673 14.4%2010 14,703 2,265 13.4%2011 15,818 2,366 13.0%2012 16,856 2,664 13.6%2013 18,791 2,878 13.3%2014 18,700 2,485 11.7%2015* 15,733 2,156 12.1%

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties listed through REIN by REIN members, may not represent all new construction activity in our region.

5

3,224

1,592

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500

1,000

1,500

2,000

2,500

3,000

3,500

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Number of Active Listing of Distressed Homes (REO & Short Sales)

Hampton Roads: June 2008 to September 2015

6

Source: Real Estate Information Network (REIN) and the Old Dominion University Economic Forecasting Project.

September 2015: 1,592Peak: 3,224 (November 2010)

Change in Assessed Value of Real Estate

7

-10%

-5%

0%

5%

10%

15%

20%

25%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Perc

ent C

hang

e

Fiscal Year

Residential Commercial Total

Projected

Source Real Estate Assessor’s Office

Consumer Confidence

Consumer Confidence Index

9

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Perc

ent

Month and Year

Source: Consumer Confidence Board

90

50

Consumer Price Index 10

5.4%

-1.5%

3.8%

0.2%

2.1% 2.4%

-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source: U.S. Bureau of Labor Statistics

11

Q2.

Household Net Worth

Percent of disposable personal income

Source: Federal Reserve, Richmond BA Z.1 Financial Accounts of the United States via Haver Analytics

-4

-3

-2

-1

0

1

2

3

4

5

6

-4

-3

-2

-1

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

12Disposable Personal Income & Expenditures

Source: Federal Reserve, Richmond VA Bureau of Economic Analysis via Haver Analytics

12 Month percentage change

Real Personal Consumption Expenditure

Real Disposable Personal Income

August

Note: Real disposable personal Income was adjusted to remove tax-induced income shifting near end of 2012.

June July AugustIncome 0.2 0.4 0.3Expenditures 0.1 0.3 0.4

Month over Month % Change

Median Household Income 13

$65,776

$59,298 $61,626

$68,816

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

$75,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

THO

USA

NDS

YEARSVirginia Beach United States

Source: U.S. Census Bureau American Community Survey

Defense

Caps on Defense Spending 15

450

500

550

600

650

700

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Billio

ns

BCA 2011 Sequestration BBA 2013 BA 2015

Source: BCA2011, Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project

Hampton Roads Gross Regional Product Attributable to DOD Spending

16

49.5%48.8%

32.8%

44.9%40.3%

39.3%

0%

10%

20%

30%

40%

50%

1984-2015

Source: ODU State of the Region Report, 2015

Employment

Unemployment Rate 18

Percent

Source: Federal Reserve, Richmond VA, Bureau of Labor Statistics & Board of Governors via Haver Analytics

FOMC ProjectionSeptember5.1%

FOMC projection is the median, range, and central tendency for the Q4 levels, from the September 2015 meeting. Grey Boxes indicate median projections

Unemployment Rate 19

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

PERC

ENT

YEAR

Virginia Beach Virginia U.S.

Source: U.S. Bureau of Labor & Statistics

Revenues

21

Key Assumptions

No change in tax rates

No use of fund balance

Regional Economists indicate a slowly improving regional economy

Given Federal Budget, funding for schools and city services will be minimally impacted

Revenue Projections

13.8%

9.4%

4.8%

-0.1%1.5%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

80-90 90-00 00-10 10-14 15-20

Average Revenue Growth Rates by Decade

22

Real Estate Tax Revenue

$380 $400 $420 $440 $460 $480 $500 $520 $540 $560 $580

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

Mill

ions

Budget Actual Projection

2¢

6¢

23

-2¢

Each 1¢ increase = $5.2 million

General Fund only

Personal Property Tax

2437%

42%

1% 18%

2%Vehicles(PPTRA)Vehicles

Public Service

BusinessEquipmentOther

$100$110$120$130$140$150$160

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Year

Budget Actual Projection

30¢Each 10¢ increase on the vehicle portion of

the personal property tax = $3.6 million

Restaurant Meals 25

$0$5

$10$15$20$25$30$35$40$45$50$55

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Year

Budget Actual Projection

Each 1% rate increase = $7 million

General Fund only

$45

$50

$55

$60

$65

$70

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Year

General Sales Tax

Budget Actual Projection

$60

$65

$70

$75

$80

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Year

State Shared Sales Tax

Budget Actual Projected

Source: Budget and Management Services

26Sales Taxes

Base Revenue* Forecast 27

$1,394 $1,415

$1,437 $1,458

$1,485 $1,513

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Milli

ons

Fiscal Years

* Net of School Transfer

School Revenues

$0 $100 $200 $300 $400 $500

201620172018201920202021

Millions

State Funding City Funding

28

Expenditures

30Expenditure Projections

Key AssumptionsNo pay increases

5% increase in health insurance contribution

VRS contribution increase

Operating costs increase by inflation

Debt service based on Charter Debt capacity

Demand for Services 31

90 100 110 120 130 140 150 160 170 180 190

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Fiscal Years

If demand was consistent,all bars would be flat at the 2000 level of 100

Source: Budget and Management Services

Salary and Fringe Benefits 32

$386 $390 $395 $399 $403

$615 $618 $622 $625 $629

$0

$100

$200

$300

$400

$500

$600

$700

FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21

Milli

ons

Fiscal Years

City School

City and School Employer Contribution to Health and Pension

33

$- $20 $40 $60 $80

$100 $120 $140

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Years

VRS Health Insurance

Projected

City and School Operating Costs*

34

$291 $298 $304 $316 $324

$155 $154 $152 $155 $155

$-

$100

$200

$300

$400

$500

FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21

Milli

ons

Fiscal Years

City School

*Net of School Transfer from the General Fund

Average Price Per Gallon(Blended rate for gasoline and diesel)

35

2.02

2.67

2.082.06

2.61

3.06 3.05 2.97

2.24

2.84

3.30

2.41

2.84

3.58 3.68 3.583.44

1.5

2

2.5

3

3.5

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

Dol

lars

Calendar YearsCity National

Source: U.S. Energy Information Administration and the Virginia Beach City Garage

Debt Service 36

$45 $45 $48 $45 $48 $50 $54 $58 $62 $66 $66

$44 $45 $45 $43 $46 $45 $46 $45 $43 $44 $42

$0$10$20$30$40$50$60$70

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

ions

Fiscal Years

City Schools

Base Expenditure* Forecast 37

$1,394 $1,446

$1,460

$1,474

$1,496

$1,513

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Mill

ions

Fiscal Years* Net of School Transfer

Per Capita Expenditure Comparisons

38

3.13 3.28 3.29 3.39 3.28

1.66 1.89 1.43 1.61 1.56

0.000.501.001.502.002.503.003.504.00

VirginiaBeach

Chesapeake Norfolk Portsmouth Suffolk

Thou

sand

s

City Schools

Source: State Auditor of Public Accounts, Comparison of Localities

Putting it all Together

39

40

$947.5 $990.9 $985.3 $1,012.5

$1,047.5 $1,085.7

$1,103.8 $1,121.5 $1,144.2 $1,163.6

$1,070.7 $1,086.0 $1,101.7 $1,123.1 $1,145.1

$900.0

$1,000.0

$1,100.0

$1,200.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Milli

ons

City Base Forecast

$729.0 $751.3

$749.9

$769.8 $771.7

$775.2 $781.4 $785.9

$704.3 $728.0

$753.6 $767.2

$779.3 $791.6 $804.3

$680

$730

$780

$830

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Milli

ons

Schools Base Forecast

Expenditures Revenue

Base Forecast 41

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Mill

ions

Fiscal Years

Base Expenditures Base Revenues

Projected deficit for FY 2017 is $31.3 million

Both Revenues and Expenditures are net of School Transfer

Flat Revenue Growth 42

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Mill

ions

Fiscal Years

Base Expenditures Base Revenues Flat Revenues

Flat Revenue growth would increase the deficit by $21.6 million to $53.1 million

Both Revenues and Expenditures are net of School Transfer

Higher Revenue Growth 43

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Mill

ions

Fiscal Year

Base Expenditures Base Revenues High Revenues

At a growth of 3.5% in revenue the deficit would essentially be eliminated

Both Revenues and Expenditures are net of School Transfer

Expenditures with Pay Increase 44

$1,350

$1,400

$1,450

$1,500

$1,550

$1,600

$1,650

$1,700

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Mill

ions

Fiscal Year1.66% Pay Increase Base Expenditures Base Revenues

A 1.66% pay increase each year would cost an additional $15 million in FY 17 and would increase the deficit to $46.3 million

Both Revenues and Expenditures are net of School Transfer

Conclusion Budget will be balanced when presented to

the City Council and School Board

We have managed through greater deficits during the recession

The economy is getting better…slowly

45